Date: 25th December
It gladdens the heart to see optimism and good sense beginning to prevail over this non-issue; the latest article on this matter has yet again revisited, and added to, earlier papers on this topic, which is worth a mention.
“Research on impact of retail sector regulations by the author for a CUTS international report on Competition and Regulation in India, 2011 revealed that:
(a) Globally, in densely populated countries like India (with consequent higher real estate prices), small-store formats thrive, and even flourish in the face of the competition from big-box retail;
(b) On the other hand, the introduction of foreign competition forced manufacturers to cut costs in their supply chains and small stores become more efficient, and provide more serious competition to large-store formats and centralised operation that the multinational retailers prefer;
(c) This latter trend is already becoming apparent in India, in many localities in Delhi that the study surveyed, as small store-owners are responding by upgrading to modern formats with convenient and better organised displays, ICT (information and communications technology)-enabled storage and procurement management and electronic billing counters, while building on their own areas of strength.“
This is precisely what my arguments have largely been about, as presented in this blog; as well as of the entire pro-FDI community in retail; none of the above is rocket science; having said that it is important for decision-making to have a confirmed research report that corroborates intuitive analysis; analysts have been known to be wrong before! Most research was a bit dated, so it is nice to have a reconfirmation.
But the article goes beyond that; and I quote: “Though 53 cities in the country meet the population criterion, only 18 of those are in the 10 states and union territories that have agreed to permit FDI in multi-brand retail. Thus, the policy is de facto akin to a “lab experiment”. With that, in combination with the research quoted above, comes to a close a needless argument – or, at least, it should. There will of course be political overtones and social reactions, as it is an extremely emotive topic – but that is another story.
While the article correctly touches on the rising star of online retail, it makes a link between online retail and kirana store sales. Yes, the younger generation is very adept at and comfortable with online transactions, but saying that it will impact kirana store sales seems a bit of a tall tale. I may be wrong in this; for it is too early in the day to make any comment. And this is also corroborated by the research, which comes across as a surprise. Does online retail really constitute a “more credible threat” to kirana sales?
That it is a threat in some categories – like books – is already a reality; that much is true. But does this extend to grocery? Honestly, I am inclined at this point on the reverse; that it does not – not over the short to medium term. The reason is the fast growing population, 6% internet penetration (let alone transactions penetration), low awareness & education levels, low per capita income, buying behaviour with the lady of the house preferring the physical touch and feel and sporadic, unplanned & at times impulse purchases of other categories from Kirana offtake. Perhaps, when India is a developed or middle income economy, the game may undergo a change… let us see. True, online sales are rising; but the sheer numbers of consumers in India might just ensure a safe short-to-mid term. Further, the urban and A-class consumers might shift over to retail – the threat of shift as calculated in the report can only mean that; this may happen over the mid term even. Since I accept one part of the report, I have to accept it all.
And if you look at it in this way, then it begins to click and come together, As internet penetration, awareness, usage and comfort grows in tandem with increasing income levels, the penetration of online shopping in combination with Cash On Delivery will increase. Thus richer localities will see changes; the others will only feel the same over a longer- indeed, given the realities in India, a much longer period. What precisely will those changes be, which categories will bear the heaviest brunt, what changes occur at the store level, how our shopping experiences will be redefined all lie in the future… let us see how it turns out!
‘via Blog this’
- Current Account Deficit nearly 4%… (or more than 4 now)
- High Fiscal Deficit
- High Inflation
- Policy Paralysis…
- Eurozone brouhaha
- Indian Economy in trouble
- Public up in arms against just about every move the government makes
- All time low confidence levels in government
- World Economy teetering
- Political equations in a fluid state
- Mulayam Factor
- BJP in disarray as well
The key finding of the report are encapsulated below:
1) An initial fall of 23% in terms of volume. This loss is made up in the subsequent years
2) No evidence of a decline in overall employment in the organised sector
3) Closure rate of the small kirana store @ 1.7% due to the Organised Retail Phenomenon. Total Kirana closed were @ 4.2%. Out of this 4.2%, only 1.7% were due to organised sector factors
4) Competitive response from traditional retailers through adoption of technology and improved business practices
5) Extension of credit to customers
Far more interesting is the anaylsis of the impact of / on customers
1) Increased Consumer Spending
2) Proximity is a major advantage of the small retailer
Increased Consumer Spending
This is something all of us should have observed! We do tend to pick up far more items when the full range is displayed in front of our eyes: that 10-rs pack of chocos; those cakes and tit-bits; small tinkers that we spot on shelves; the odd item with a deal too good to refuse; the latest kitchen gizmo; that shiney kitchen aid; that bunch of hankies we dont need; all those lovely toys for the kids… the list can be endless.
An Organised Outlet will be at least a km away – if not more. The very fact that the local kirana store is right next door is in itself a powerful advantage. This is particularly important since needs arise in a normal household practically everyday. Further, quite a few items are usually forgotten in our trips to the mall – or the brands we need are not available.
Both the above do not explain why is it that kirana concept is not only surviving, but also thriving. The adjustments made by this category can be said to be:
1) Convenient Timings
2) Credit Facility
3) Lower wait time in-store
4) Personalised Service
5) Smaller Pack Size Availability
6) Consumer Goodwill
7) Home Delivery
8) Facility of open goods: loose sale of packaged goods
9) Local Brands Stocking
10) Knowledge of Consumer Preferences
11) One-stop shop concept, with a wider range of products being stocked – viz. stationery, batteries, bakery items, snacks and sweet meets, ice cream, soft drinks,
12) Friendly replacement and return policies
13) Innovative new products especially in impulse categories
14) Perishables like milk – esp home delivery on coupons
15) Bill payment support to nearby households and other services
16) Stocking of all new product launches – faster than even the chains
The above small items, taken together, are creating a powerful force that is retaining the customer profile. On the customer front, what is happening is that the share-of-wallet, which was earlier 100% to the local kirana market, is now being shared between the organised retailer and the kirana merchant in a few segments of the market. For the lower segments of the population, the facility of smaller pack sizes, loose goods and credit are together ensuring stickiness. In fact, these last 3 factors are powerful strategies, given India’s demographic and income profile. As an example, I have frequently found that a 100g pack of my brook bond herbal variant of Red Label is not stocked by malls. I can think of quite a few other similar cases…
The other major factors in the equation are
1) Increased Consumer Spending
2) Increased Prices
3) Increasing Households and Population
4) Increase in Per Capita Income
These factors are growing the overall market: which is creating space for all the players!